Addiction to a Network

Abstract

We characterize dynamic rational addiction to a harmful product by an informed individual who is connected to a network of users of the addictive product. The network harms the individual and imposes peer pressure on her to consume the addictive product. The network contributes to the state variable of accumulated stock affecting the individual. We identify the size of a network that causes the individual to start consuming the addictive product and become addicted. For an individual particularly prone to addiction, who may also abstain from the product, a network contributing to the individual's stock more than the individual's per-period income causes the individual's unique steady state to be that of maximum consumption of the addictive product. The network lowers the critical level above which the individual's optimal consumption path converges to a high steady state. An addicted individual always increases her steady state consumption due to any increase in the network, despite the harmful future repercussions of such increased consumption. “Rehabilitation” (redefined as disconnection from the network's peer pressure, reduction of the network's size, shortening the period of exposure to the network, or reducing the network's consumption) can prevent addiction if implemented early enough along the individual's optimal consumption path.